Semiconductor revenue drops on economic woes

Softening demand for a wide range of products has taken its toll on the worldwide semiconductor industry, which recorded an estimated revenue decline of US$12 billion for 2008 compared to last year, Gartner said in a study released on Friday.

Semiconductor companies are feeling the effects of constrained budgets and a slowdown in demand for products like cars, consumer electronics and PCs, which has resulted in lower revenue, said Andrew Norwood, research vice president at Gartner. The semiconductor industry makes components for sectors ranging from the technology industry to the medical industry.

The automotive industry meltdown has particularly hit the semiconductor industry hard because of a slowdown in demand for cars, which use many electronic components, Norwood said. There is also less inclination for consumers to spend money on in-car navigation and entertainment systems, for which semiconductor companies make components.

PC makers are also slowing down component orders and are instead trying to clear out existing inventory, Norwood said. The inventory purge by PC makers and other companies is leaving semiconductor factories underutilized, which creates a cost burden that semiconductor companies have to bear.

Total estimated revenue for the semiconductor industry in 2008 is $261.9 billion, a 4.4 percent decline from 2007, according to Gartner. Revenue for semiconductor companies will continue to decline through next year due to the economic slowdown. Only a wider economic recovery will put the industry back on its feet, as semiconductor companies are connected to numerous industries, Norwood said.

Until then semiconductor manufacturers have to preserve cash in order to survive. It could also be a good time for companies in a better position to acquire the weaker companies, which could contract the industry, Norwood said.

Many of the top semiconductor manufacturers saw revenue either decline or record flat growth this year, according to Gartner. Except for Intel, which saw flat revenue growth, Samsung, Toshiba, Texas Instruments and STMicroelectronics all saw year-over-year revenue drops in 2008.

Intel was the top semiconductor manufacturer, recording estimated semiconductor revenue of $34.18 billion during 2008, a 1.1 percent year-over-year increase, and a 13.1 percent market share. Samsung was in second place, recording $17.9 billion in estimated semiconductor revenue, a 6.8 percent market share and a 12.5 percent year-over-year drop. Toshiba, in third place, saw its revenue decline by 11.1 percent to reach $10.5 billion.

The exception was Qualcomm, which saw its revenue increase by 15 percent in 2008. The company saw strong growth in the first three quarters, but demand for its CDMA (Code Division Multiple Access) chipsets and components fell in the fourth quarter as carriers and cell phone makers reduced orders to purge existing CDMA component inventory.

Many semiconductor companies, including Intel and Texas Instruments, have also slashed revenue expectations in recent months. Intel last month cut its fourth-quarter revenue forecast to about $9 billion, plus or minus $300 million, down from its earlier forecast of $10.1 billion to $10.9 billion, amid a spending slowdown. Texas Instruments earlier this week reduced its fourth-quarter revenue expectations by as much as two-thirds, blaming the economic downturn and a slowdown in demand for its products.

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